Trading stocks reacting to news without reading it? Seems like a weird thing to do but let me explain.
Our bread and butter is trading momentum stocks, especially those that get hit with news. We took a trade today in SHOP that got rocked after some news hit the market. The actual content of the news isn't as important as how the stock reacts to it. We look for a setup to form that gives us an opportunity to enter the stock.
News Surges Volume and Price Range
When you have a technical analysis pattern and you’re marrying it with fresh news, you’re likely going to get a surge in volume. This volume is going to give you a bigger push than what you would get on straight technicals alone. One of the things that I always look for is expanding volume, and in this case it was 6 million shares.
As this news came out, SHOP spiked down to $110. I don’t like to chase these things down on the first candle. I always wait for it to pop or a technical pattern. As it hung out under its VWAP, I notice it developed a big ORB pattern. The ORB pattern stands for the opening range breakdown. SHOP developed a morning range and then violated the support level, signalling an imminent break. I anticipated the flush as it began curling down underneath the VWAP so I added into my position. Once the flush came I covered some at support and into the thrust.
Exit Target at Support
Remember, you don’t know how far down its going to go, but you need to have an idea in mind. I used the daily chart to see where the first levels of support could be. I also have my 50 SMA acting as support near the same area. I want to be covering into that spot since it's a potential a bounce spot.
This is how you pick your targets. You look at stocks on multiple time frames and then use a little bit of common sense. When it's starting to get a bit extended and close to support start taking your gains. I always like to leave a little for a home-run especially when you have a good setup with news. Remember to move your stop to your entry price to make sure you're guaranteed a profit on the trade.
If you’re not sure of the setups and price patterns that we’re talking about you can learn them all in our Bulls Bootcamp. It's an intensive 60 day course to teach you exactly how I trade and why. Our next bootcamp starts on October 12th, 2017. To learn more or signup, email me at firstname.lastname@example.org today!